You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our audited financial statements and related notes included in our Annual Report on Form 10-K for the year endedDecember 31, 2020 , or the 2020 Annual Report, that was filed with theSecurities and Exchange Commission , orSEC , onMarch 1, 2021 . In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors. Among the important factors that could cause actual results to differ materially from those indicated by our forward-looking statements are those discussed under the heading "Risk Factors" in Part II, Item 1A. and elsewhere in this report, and in the 2020 Annual Report. Objective The purpose of this Management's Discussion and Analysis is to better allow our investors to understand and view our company from our management's perspective. We are providing an overview of our business and strategy, followed by a discussion of our financial condition and results of operations. As further discussed below, our vision is to continue building a leading messenger RNA, or mRNA, product company, leveraging our extensive experience with proprietary mRNA product development, delivery, manufacturing and process development. However, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. We believe that our existing cash, cash equivalents and investments will enable us to fund our operating expenses and capital expenditure requirements through 2023. Business Overview We are a clinical-stage mRNA therapeutics company developing a new class of potentially transformative medicines to treat diseases caused by protein or gene dysfunction, or to prevent infectious diseases by generating protective immunity. Using our proprietary mRNA therapeutic platform, or MRT platform, we create mRNA that encodes functional proteins. Our mRNA is designed to be delivered to the target cell where the cell's own machinery recognizes it and translates it, restoring or augmenting protein function to treat or prevent disease. We believe the mRNA design, delivery and manufacturing capabilities of our MRT platform provide us with the most advanced platform for developing product candidates that deliver mRNA encoding functional proteins for therapeutic uses. We believe our MRT platform is broadly applicable across multiple diseases in which the production of a desirable protein can have a therapeutic effect. We are primarily focused on applying our MRT platform to treat pulmonary diseases caused by insufficient protein production or where production of proteins can modify disease. In addition, we are pursuing discovery efforts in diseases that affect the liver. We are also pursuing the applicability of our MRT platform for the development of mRNA vaccines for infectious diseases under a collaboration withSanofi Pasteur Inc. , or Sanofi, the vaccine global business unit ofSanofi S.A. We are developing MRT5005 for the treatment of cystic fibrosis, or CF. We believe MRT5005 is the first clinical-stage mRNA product candidate designed to deliver mRNA encoding fully functional cystic fibrosis transmembrane conductance regulator, or CFTR, protein to the lung. We have designed MRT5005 to be inhaled via a handheld nebulizer. Once the inhaled MRT5005 has entered the epithelial cells lining the patient's lungs, our therapeutic mRNA uses the cells' own machinery for translation and expression of fully functional CFTR protein, thereby restoring this essential ion channel, which we believe will address the pathology of CF directly. Currently approved CFTR modulating therapies are limited to patients with specific genetic mutations; therefore, there remains a significant unmet medical need for patients with CF who have genetic mutations non-amenable to currently approved CFTR modulating therapies. Additionally, patients treated with these current therapies still suffer from a long-term decline in lung function and exacerbations that require hospitalization. MRT5005 is being developed to treat the underlying cause of CF, regardless of the specific genetic mutation, including in patients with limited or no CFTR protein. TheU.S. Food and Drug Administration , or FDA, has granted orphan drug designation, fast track designation and rare pediatric disease designation for MRT5005 for the treatment of CF. We are conducting a Phase 1/2 clinical trial to evaluate the safety and tolerability of single- and multiple-ascending doses of MRT5005. The clinical trial is investigating several groups receiving five once-weekly doses, as well as a group receiving five daily doses. Percent predicted forced expiratory volume in one second, or ppFEV 1 , which is a well-defined and accepted endpoint measuring lung function, is also being measured at pre-defined timepoints throughout the trial as a safety measure. Target enrollment for each dose group consists of four patients total, three patients receiving MRT5005 and one receiving placebo. In evaluating safety and tolerability, the primary outcome measure, data to date from the ongoing Phase 1/2 clinical trial suggested that repeat dosing of MRT5005 was generally safe and well tolerated. For patients receiving MRT5005, ppFEV 1 was not negatively impacted; there was no pattern of treatment-associated increases in ppFEV 1 . There was no clinically relevant immunogenicity as measured by anti-CFTR antibodies, anti-PEG antibodies or T-cell sensitization to CFTR. Detection of mRNA and lipid in the blood suggests that MRT5005 crosses the mucus layer, delivering mRNA to the lung of CF patients. 25
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Table of Contents The clinical trial continues to dose in the remaining dose groups, which include a 20 mg multiple-ascending dose group and the daily dosing cohorts, and we anticipate reporting the findings from the clinical trial at a future medical meeting. We plan to continue with ongoing and additional translational studies with MRT5005 and a next-generation CF candidate to support and optimize future clinical development, including research into dosing, formulation and nebulization. We have a next-generation CF discovery program that incorporates mRNA codon optimization and advances in lipid nanoparticle, or LNP, chemistry. Positive preclinical data generated supports planned initiation of investigational new drug, or IND,-enabling studies in the second half of 2021. We are leveraging our lung delivery platform and focusing our preclinical research efforts on identifying lead product candidates in additional pulmonary diseases with unmet medical need, including primary ciliary dyskinesia, pulmonary arterial hypertension and respiratory infectious diseases. In addition, we are pursuing discovery efforts in diseases that affect the liver. We have also begun to explore ways to apply our mRNA and delivery platform expertise to diseases where the degradation of a protein would lead to therapeutic benefit. We believe that using mRNA to enable the production of a molecule that can help tag a target protein for destruction within the cell may have advantages over other protein degradation approaches, including the ability to reach previously undruggable therapeutic targets and increase target selectivity. Additionally, we are evaluating the potential of delivering mRNA encoding therapeutic antibodies. We have early discovery efforts ongoing in these areas. Additionally, we are leveraging the broad applicability of our platform through a collaboration with Sanofi to develop infectious disease vaccines using our mRNA technology. In the case of vaccines, the mRNA instructs certain cells in the body to produce an antigen that will induce an immune response to an infectious pathogen. Under the collaboration with Sanofi, we are jointly conducting research and development activities to advance vaccines targeting up to seven infectious disease pathogens. As part of the ongoing vaccine development program, comprehensive in vivo studies have been conducted across several infectious disease targets. Multiple development candidates have been evaluated against distinct pathogens, all of which were well tolerated across all species tested. Multiple antigens have been tested with all demonstrating robust neutralization titers. Two of the target pathogens under development are a novel strain of coronavirus named SARS-CoV-2, which causes COVID-19, and influenza. After evaluation of multiple COVID-19 vaccine candidates in vivo for immunogenicity and neutralizing antibody activity, MRT5500 was selected as the lead candidate for a vaccine against SARS-CoV-2. InOctober 2020 and inApril 2021 , preclinical data was reported demonstrating that MRT5500 induced potent neutralizing antibodies against SARS-CoV-2 in mice and non-human primates, or NHPs. Two doses of MRT5500 in NHPs induced neutralizing antibody levels significantly higher than those observed in a panel of samples from COVID-19 patients. Additionally, MRT5500 demonstrated protection against viral infection and disease progression in Syrian golden hamsters immunized with MRT5500 against a virus challenge. It was also demonstrated that MRT5500-immunized mice and NHPs exhibited a Th1-biased T-cell response against SARS-CoV-2. Vaccine-associated enhanced respiratory disease, or VAERD, has generally not been reported to be associated with a Th1-biased T-cell response and therefore these data suggest the potential for a reduced risk for VAERD. A Phase 1/2 clinical trial to evaluate MRT5500 began inMarch 2021 and interim data from this trial is expected in the third quarter of 2021. For information on risks related to our successful development of a vaccine against COVID-19, please see Part II, Item 1A - "Risk Factors - Risks Related to the COVID-19 Pandemic," included elsewhere in this Quarterly Report on Form 10-Q. For the influenza vaccine program, lead LNP/mRNA formulations are being evaluated in preclinical studies to support a clinical proof-of-technology trial anticipated to begin mid-year 2021. Preclinical studies are ongoing for targets against additional viral and bacterial pathogens. Our vision is to continue building a leading mRNA product company, leveraging our extensive experience with proprietary mRNA product development, delivery, manufacturing and process development. Our proprietary MRT platform has enabled us to focus on direct therapeutic approaches to treat specific genetic diseases with significant unmet medical need. We are primarily focused on applying our MRT platform to treat pulmonary diseases where the production of proteins can modify disease. We are also leveraging our platform's broad applicability to other diseases, including liver diseases, as well as to preventing disease in the case of infectious disease vaccines. To realize our vision, we plan to advance multiple programs to clinical stage, add new pipeline programs and continue to innovate on the mRNA platform. In order to achieve these goals, we plan to increase our research and development investments, add key in-house capabilities, deepen our platform and delivery expertise as well as expand our infrastructure and facility size. We also plan to appropriately invest in manufacturing and commercial capabilities to support continued growth and advancement and our ultimate goal of delivering mRNA medicines to treat or prevent life-threatening or debilitating illnesses. The successful development of our product candidates will require, among other things, our mRNA manufacturing capabilities. To date, we have established 100-gram single-batch production with our clinical-stage mRNA therapeutics platform. Build-out of a dedicated manufacturing space through a contract manufacturing partner was completed during the third quarter of 2020 and has the potential to accommodate multiple 250-gram batches per month upon continued investments and third-party supplier arrangements. As it relates to development of a COVID-19 vaccine, depending on the final human COVID-19 vaccine dose and timing of scale-up activities, we estimate that we could have manufacturing capacity to produce 90-360 million doses annually. We plan to further expand our mRNA manufacturing capabilities to increase production capacity, and will need to work with raw material and other third-party suppliers to achieve this goal. 26
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Table of Contents Since our inception in 2011, we have devoted substantially all of our focus and financial resources to organizing and staffing our company, business planning, raising capital, acquiring or discovering product candidates and securing related intellectual property rights and conducting discovery, research and development activities for our programs. We do not have any products approved for sale and have not generated any revenue from product sales. ThroughMarch 31, 2021 , we have funded our operations primarily through sales of equity securities and upfront and milestone payments received under a collaboration and license agreement with Sanofi and we have received proceeds of approximately$1.1 billion from such transactions. We are a party to an Open Market Sale Agreement SM , or Sales Agreement, withJefferies LLC , or Jefferies, under which we may issue and sell shares of our common stock, from time to time, having an aggregate offering price of up to$100.0 million . As ofMarch 31, 2021 , we have issued and sold 2,863,163 shares of our common stock pursuant to the Sales Agreement, resulting in gross proceeds of$37.9 million , before deducting commissions of$1.1 million and other offering expenses of$0.2 million . There were no shares issued or sold pursuant to the Sales Agreement during the three months endedMarch 31, 2021 . In the future,$62.1 million of shares of common stock remain available to be sold pursuant to the Sales Agreement, which sales, if any, would be made under our universal shelf registration statement on Form S-3, or the 2020 Shelf. OnJune 30, 2020 , we issued and sold 5,681,819 shares of our common stock through a public offering under a Registration Statement on Form S-ASR, which became automatically effective upon filing onJune 24, 2020 , at a price per share of$22.00 , resulting in gross proceeds of$125.0 million , before deducting underwriting discounts and commissions of$7.5 million and other offering expenses of$0.5 million . Since our inception, we have incurred significant operating losses. Our ability to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our current or future product candidates. As ofMarch 31, 2021 , we had an accumulated deficit of$386.8 million . We expect to continue to incur significant expenses for at least the next several years as we advance our product candidates from discovery through preclinical development and clinical trials and seek regulatory approval. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution. We may also incur expenses in connection with the in-licensing or acquisition of additional product candidates. As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through the sale of equity, debt financings or other capital sources, including collaborations, strategic partnerships or marketing, distribution or licensing arrangements with third parties or grants from organizations and foundations. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back or discontinue the development and commercialization of one or more of our product candidates or delay our pursuit of potential in-licenses or acquisitions. Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations. As ofMarch 31, 2021 , we had cash, cash equivalents and investments of$654.8 million . We believe that our existing cash, cash equivalents and investments will enable us to fund our operating expenses and capital expenditure requirements through 2023. Sanofi Pasteur Collaboration and Licensing Agreement In 2018, we entered into a collaboration and license agreement with Sanofi, or the Original Sanofi Agreement, to develop mRNA vaccines for up to five infectious disease pathogens, or the Licensed Fields. OnMarch 26, 2020 , we and Sanofi amended the Original Sanofi Agreement, or the First Sanofi Amendment, to include vaccines against SARS-CoV-2 as an additional Licensed Field, increasing the number of infectious disease pathogens to up to six. OnJune 22, 2020 , we and Sanofi further amended the Original Sanofi Agreement to expand the scope of the collaboration and licenses granted to Sanofi, or the Second Sanofi Amendment, which closed onJuly 20, 2020 , the effective date. The Original Sanofi Agreement, as amended by the First Sanofi Amendment and the Second Sanofi Amendment, is referred to as the Amended Sanofi Agreement. Pursuant to the Amended Sanofi Agreement, we and Sanofi are jointly conducting research and development activities to advance mRNA vaccines targeting up to seven infectious disease pathogens. The term of the research collaboration expires inJune 2022 , with an option for Sanofi to extend for one additional year. If Sanofi elects to extend the collaboration, the collaboration may be further expanded to jointly conduct research and development activities to advance mRNA vaccines for up to an additional three infectious disease pathogens, bringing the total to up to ten pathogens. 27
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Table of Contents Under the terms of the Amended Sanofi Agreement, we have granted to Sanofi exclusive, worldwide licenses under applicable patents, patent applications, know-how and materials, including those arising under the collaboration, to develop, commercialize and manufacture mRNA vaccines to prevent, treat or cure diseases, disorders or conditions in humans caused by any infectious disease pathogen, with certain specified exceptions. Business Impact of the COVID-19 Pandemic Since early 2020, the outbreak of the novel strain of coronavirus named SARS-CoV-2, which causes COVID-19, has spread across the globe and the COVID-19 pandemic has had wide-reaching impacts on the global economy and business operations. The COVID-19 pandemic has had, and we expect it will continue to have, an impact on our operations, the operations of our collaborators, the operations of third-party contractors and other entities, with which we interact, as well as on the patients who may enroll in our clinical trials. We actively continue to monitor COVID-19 trends and government guidance. The ultimate impacts of the COVID-19 pandemic are still unknown and uncertain. For additional information on risks posed by the COVID-19 pandemic, please see Part II, Item 1A - "Risk Factors - Risks Related to the COVID-19 Pandemic," included elsewhere in this Quarterly Report on Form 10-Q. Components of Our Results of Operations Revenue from Product Sales To date, we have not generated any revenue from product sales, and we do not expect to generate any revenue from the sale of products in the near future. If our development efforts for our product candidates are successful and result in regulatory approval, we may generate revenue in the future from product sales. Collaboration Revenue Since 2018, we have recognized revenue relating to the Amended Sanofi Agreement. Under revenue recognition guidance, we account for: (i) the license we conveyed to Sanofi with respect to the Licensed Fields, (ii) the licensed know-how to be conveyed to Sanofi with respect to the Licensed Fields, (iii) our obligations to perform research and development on the Licensed Fields, (iv) our obligation to transfer licensed materials to Sanofi, (v) our obligation to manufacture and supply certain non-clinical and clinical mRNA vaccines and materials containing mRNA until we transfer such manufacturing capabilities to Sanofi and (vi) the technology and process transfer as a single performance obligation. We recognize revenue using the cost-to-cost input method, which we believe best depicts the transfer of control to the customer. Under the cost-to-cost input method, the extent of progress towards completion is measured based on the ratio of actual costs incurred to the total estimated costs expected upon satisfying the identified performance obligation. Under this method, revenue is recorded as a percentage of the estimated transaction price based on the extent of progress towards completion. We recognize adjustments in revenue under the cumulative catch-up method. Under this method, the impact of this adjustment on revenue recorded to date is recognized in the period the adjustment is identified. Operating Expenses Research and Development Expenses Research and development expenses consist primarily of costs incurred in connection with the discovery and development of our product candidates. We expense research and development costs as incurred. These expenses include: • employee-related expenses, including salaries, related benefits and stock-based compensation expense for employees engaged in research and development functions; • expenses incurred in connection with the preclinical and clinical development of our product candidates, including under agreements with third parties, such as consultants and contract research organizations, or CROs; • the cost of manufacturing drug products for use in our preclinical studies and clinical trials, including under agreements with third parties, such as consultants and contract manufacturing organizations, or CMOs; • laboratory supplies; 28
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Table of Contents • facilities, depreciation and other expenses, which include direct or allocated expenses for rent and maintenance of facilities and insurance; • costs to fulfill our obligations under our collaboration with Sanofi; • costs related to compliance with regulatory requirements; and • payments made under third-party licensing agreements.
We recognize external development costs based on an evaluation of the progress to completion of specific tasks using information provided to us by our service providers. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. Such amounts are recognized as an expense when the services have been performed or the goods have been delivered, or when it is no longer expected that the goods will be delivered or the services rendered. Upfront payments, milestone payments (other than those deemed contingent consideration in a business combination) and annual maintenance fees under license agreements are expensed in the period in which they are incurred. Our direct research and development expenses are tracked on a program-by-program basis and consist primarily of external costs, such as fees paid to outside consultants, CROs, CMOs and central laboratories in connection with our preclinical development, process development, manufacturing and clinical development activities. Our direct research and development expenses by program also include costs of laboratory supplies incurred for each program as well as fees incurred under license agreements. We do not allocate employee costs or facility expenses, including depreciation or other indirect costs, to specific programs because these costs are deployed across multiple programs and, as such, are not separately classified. We use internal resources primarily to conduct our research and discovery and to manage our preclinical development, process development, manufacturing and clinical development activities. The table below summarizes our direct research and development expenses incurred by program:
Three Months Ended March 31, 2021 2020 (in thousands) Discovery program$ 8,616 $ 3,775 Vaccine program 7,570 2,589 MRT5005 program 6,214 6,094
Unallocated research and development expenses 18,740 8,981
Total research and development expenses
Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages, primarily due to the increased size and duration of later-stage clinical trials. As a result, we expect that our research and development expenses will increase substantially over the next several years as we conduct our clinical trials of MRT5005 for the treatment of patients with CF; expand our manufacturing capabilities; conduct research and development activities to advance mRNA vaccine candidates and develop an mRNA vaccine platform under the Amended Sanofi Agreement; prepare regulatory filings for our product candidates; continue to discover and develop additional product candidates; and potentially advance product candidates from our discovery program into later stages of clinical development. We expect to continue to devote a substantial portion of our resources to our discovery program for the foreseeable future. The successful development and commercialization of our product candidates is highly uncertain. At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of any of our product candidates. This uncertainty is due to the numerous risks and uncertainties associated with product development and commercialization, including the uncertainty of:
• the timing and progress of preclinical and clinical development activities, including delays resulting from the COVID-19 pandemic; • the number and scope of preclinical and clinical programs we decide to pursue; • our ability to maintain our current research and development programs and to establish new ones; 29
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Table of Contents • establishing an appropriate safety profile with IND enabling studies; • successful patient enrollment in, and the initiation and completion of, clinical trials; • the successful completion of clinical trials with safety, tolerability and efficacy profiles that are satisfactory to the FDA or any comparable foreign regulatory authority; • the receipt of regulatory approvals from applicable regulatory authorities; • the timing, receipt and terms of any marketing approvals from applicable regulatory authorities; • the success of our collaboration with Sanofi; • our ability to establish new licensing or collaboration arrangements; • the performance of our future collaborators, if any; • establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers; • development and timely delivery of commercial-grade drug formulations that can be used in our clinical trials and for commercial launch; • obtaining, maintaining, defending and enforcing patent claims and other intellectual property rights; • launching commercial sales of our product candidates, if approved, whether alone or in collaboration with others; and • maintaining a continued acceptable safety profile of the product candidates following approval. Any changes in the outcome of any of these variables with respect to the development of our product candidates in preclinical and clinical development could mean a significant change in the costs and timing associated with the development of these product candidates. If FDA or another regulatory authority were to delay our planned start of clinical trials or require us to conduct clinical trials or other testing beyond those that we currently expect, or if we experience significant delays in enrollment in any of our planned clinical trials, we could be required to expend significant additional financial resources and time to complete clinical development of that product candidate. We may never obtain regulatory approval for any of our product candidates. Drug commercialization will take several years and millions of dollars in development costs. General and Administrative Expenses General and administrative expenses consist primarily of salaries, related benefits and stock-based compensation expense for personnel in executive, finance and administrative functions. General and administrative expenses also include facilities, depreciation and other expenses, which include direct or allocated expenses for rent and maintenance of facilities and insurance, as well as professional fees for legal, patent, consulting, recruiting fees, investor and public relations, accounting and audit services. We anticipate that our general and administrative expenses will increase over the next several years as we anticipate increased accounting, audit, legal, regulatory, compliance, director and officer insurance and investor and public relations costs associated with being a public company. Change in Fair Value of Contingent Consideration In connection with our acquisition of the messenger RNA therapeutic platform, or MRT Program, fromShire Human Genetic Therapies, Inc. , or Shire, a subsidiary of Takeda Pharmaceutical Company Ltd., we recognized contingent consideration liabilities for future potential milestone and earnout payment obligations. The contingent consideration was initially recorded at fair value on the acquisition date and is subsequently remeasured to fair value at each reporting date. Any changes in the fair value of the contingent consideration liabilities are recognized as operating income or expenses. 30
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Table of Contents Other Income, Net Other Income, Net Other income, net primarily consists of income recognized in connection with our investments in money market funds,U.S. treasuries andU.S. government agency bonds. Income Taxes We recognized an income tax provision of$0.3 million and$0 during the three months endedMarch 31, 2021 andMarch 31, 2020 , respectively. The income tax provision recognized during the three months endedMarch 31, 2021 relates primarily to an expected income tax liability due to the acceleration of revenue recognition for tax purposes related to the Amended Sanofi Agreement. As ofDecember 31, 2020 , we hadU.S. federal net operating loss carryforwards of$239.3 million , of which$116.1 million will, if not utilized, begin to expire in 2031. As ofDecember 31, 2020 , we hadU.S. state net operating loss carryforwards of$227.6 million , which will, if not utilized, begin to expire in 2031. As ofDecember 31, 2020 , we also hadU.S. federal and state research and development tax credit carryforwards of$7.0 million and$4.3 million , respectively, which will, if not utilized, begin to expire in 2032 and 2028, respectively, and orphan drug tax credit carryforwards of$17.4 million , which begin to expire in 2037. We also have state investment tax credit carryforwards of$0.8 million , which will, if not utilized, begin to expire in 2020. As ofDecember 31, 2020 , we recorded a full valuation allowance against our net deferred tax assets. Results of Operations Comparison of the Three Months EndedMarch 31, 2021 and 2020 The following table summarizes our results of operations for the three months endedMarch 31, 2021 and 2020: Three Months Ended March 31, 2021 2020 Change (in thousands) Collaboration revenue$ 34,600 $ 4,654 $ 29,946 Operating expenses: Research and development 41,140 21,439 19,701 General and administrative 10,817 7,458 3,359
Change in fair value of contingent consideration (43,979 ) (9,452 ) (34,527 )
Total operating expenses 7,978 19,445 (11,467 ) Income (loss) from operations 26,622 (14,791 ) 41,413 Other income, net 154 509 (355 ) Income (loss) before income tax provision 26,776 (14,282 ) 41,058 Income tax provision (254 ) - (254 ) Net income (loss)$ 26,522 $ (14,282 ) $ 40,804
Collaboration Revenue
Collaboration revenue was
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Table of Contents Research and Development Expenses Three Months Ended March 31, 2021 2020 Change (in thousands)
Direct external research and development expenses by program: Discovery program
$ 8,616 $ 3,775 $ 4,841 Vaccine program 7,570 2,589 4,981 MRT5005 program 6,214 6,094 120
Unallocated research and development expenses: Personnel related (including stock-based compensation) 8,757 5,985 2,772 Other
9,983 2,996 6,987 Total research and development expenses$ 41,140 $ 21,439 $ 19,701 Research and development expenses were$41.1 million for the three months endedMarch 31, 2021 , compared to$21.4 million for the three months endedMarch 31, 2020 . The increase of$19.7 million was primarily due to continued development of our discovery program and our vaccine program associated with the Sanofi collaboration as well as increases in occupancy and personnel-related costs. Direct external expenses of our discovery program increased by$4.8 million during the three months endedMarch 31, 2021 compared to the three months endedMarch 31, 2020 primarily due to increased costs related to our ongoing exploratory research and discovery efforts to identify next-generation CF candidates and identify lead product candidates in additional pulmonary diseases. Direct external expenses of our vaccine program increased by$5.0 million during the three months endedMarch 31, 2021 compared to the three months endedMarch 31, 2020 primarily due to increased activities with the Sanofi collaboration. Direct external expenses of our MRT5005 program increased by$0.1 million during the three months endedMarch 31, 2021 compared to the three months endedMarch 31, 2020 primarily due to increased clinical trial costs offset by decreased manufacturing costs. Unallocated research and development expenses increased by$9.8 million during the three months endedMarch 31, 2021 compared to the three months endedMarch 31, 2020 . The increase of$2.8 million in personnel-related costs was primarily related to an increase in headcount in the three months endedMarch 31, 2021 compared to the same period in 2020 as well as an increase in stock-based compensation. The increase of$7.0 million in other unallocated research and development expenses was due to an increase of$4.3 million in occupancy costs and an increase of$1.6 million in amortization expense related to the definite-lived MRT intangible asset. General and Administrative Expenses General and administrative expenses were$10.8 million for the three months endedMarch 31, 2021 , compared to$7.5 million for the three months endedMarch 31, 2020 . The increase of$3.4 million was primarily due to an increase of$2.5 million in professional fees primarily consisting of increases in recruiting fees, consulting costs and legal fees primarily associated with filing patent applications and prosecuting our intellectual property portfolio. Additionally, personnel-related costs increased by$0.8 million primarily related to an increase in headcount in the three months endedMarch 31, 2021 compared to the same period in 2020 as well as an increase in stock-based compensation. Change in Fair Value of Contingent Consideration During the three months endedMarch 31, 2021 and 2020, we recognized operating income of$44.0 million and$9.5 million , respectively, for changes in the fair value of the contingent consideration liabilities we recorded in connection with our acquisition of the MRT Program inDecember 2016 . The contingent consideration liabilities relate to future potential milestone and earnout payment obligations. The income recognized during the three months endedMarch 31, 2021 was attributed primarily to a decrease in the fair value of the contingent consideration liability for future earnout payments that could become due. During the quarter endedMarch 31, 2021 , we released results of the second interim data analysis from the Phase 1/2 clinical trial of MRT5005. Following this release, we reassessed the clinical development plan for MRT5005 and adjusted the expected timelines and the probability of achieving specified events for the program, which resulted in a decrease in the fair value of contingent consideration during the three months endedMarch 31, 2021 . 32
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Table of Contents Income Taxes We recognized an income tax provision of$0.3 million and$0 during the three months endedMarch 31, 2021 and 2020, respectively. The income tax provision recognized during the three months endedMarch 31, 2021 relates primarily to an expected income tax liability due to the acceleration of revenue recognition for tax purposes related to the Amended Sanofi Agreement. Liquidity and Capital Resources Since our inception throughMarch 31, 2021 , we have not generated any revenue from product sales, have generated collaboration revenue only from the Amended Sanofi Agreement and have incurred significant operating losses and negative cash flows from our operations. We have not yet commercialized any of our product candidates, and we do not expect to generate revenue from sales of any product candidates for several years, if at all. See "-Funding Requirements" and Note 1 to the condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for a further discussion of our liquidity. ThroughMarch 31, 2021 , we have funded our operations primarily through sales of equity securities and upfront and milestone payments received under the Amended Sanofi Agreement and we have received proceeds of approximately$1.1 billion from such transactions. We are party to the Sales Agreement, with Jefferies, under which we may issue and sell shares of our common stock, from time to time, having an aggregate offering price of up to$100.0 million . Sales of common stock through Jefferies may be made by any method that is deemed an "at the market" offering as defined in Rule 415 promulgated under the Securities Act of 1933, as amended. Jefferies has agreed to use its commercially reasonable efforts consistent with its normal trading and sales practices to sell shares of our common stock based upon our instructions. We are not obligated to make any sales of our common stock under the Sales Agreement. As ofMarch 31, 2021 , we have issued and sold 2,863,163 shares of our common stock, resulting in gross proceeds of$37.9 million , before deducting commissions of$1.1 million and other offering expenses of$0.2 million . There were no shares issued or sold pursuant to the Sales Agreement during the three months endedMarch 31, 2021 . In the future,$62.1 million of shares of common stock remain available to be sold pursuant to the Sales Agreement, which sales, if any, would be made under the 2020 Shelf. OnJune 24, 2020 , we filed a registration statement on Form S-3ASR, which became automatically effective upon filing with theSEC (File No. 333-239405), referred to as theJune 2020 Registration Statement. TheJune 2020 Registration Statement registered for sale from time to time common stock, preferred stock, debt securities, warrants and/or units in one or more offerings. OnJune 30, 2020 , we issued and sold 5,681,819 shares of common stock and a stockholder sold 6,824,992 shares of common stock through a public offering pursuant to theJune 2020 Registration Statement. The price to the public was$22.00 per share, resulting in gross proceeds to us of$125.0 million , before deducting underwriting discounts and commissions of$7.5 million and other offering expenses of$0.5 million . We did not receive any proceeds from the sales of shares of common stock by the stockholder. Cash Flows The following table summarizes our sources and uses of cash for each of the periods presented: Three Months EndedMarch 31, 2021 2020 (in thousands)
Net cash provided by (used in) operating activities
(188,520 ) 44,260 Net cash provided by financing activities 1,550 75 Net increase (decrease) in cash, cash equivalents and restricted cash$ (186,281 ) $ 12,888 Operating Activities During the three months endedMarch 31, 2021 , operating activities provided$0.7 million of cash, resulting from our net income of$26.5 million and net cash provided by changes in our operating assets and liabilities of$11.3 million , partially offset by net non-cash income of$37.2 million . Net cash provided by changes in our operating assets and liabilities consisted of an$8.1 million increase in accounts payable, a$3.4 million decrease in collaboration receivables, a$3.0 million increase in deferred revenue, a$3.0 million decrease in right-of-use assets and a$2.7 million increase in accrued expenses, partially offset by a$4.7 million increase in prepaid expenses and other assets, a$3.2 million decrease in lease liability and a$1.3 million increase in long-term prepaid rent. Net non-cash charges for the three months endedMarch 31, 2021 primarily consisted of a$44.0 million decrease in the change in the fair value of contingent consideration, partially offset by a$4.0 million charge to stock-based compensation expense and a$2.8 million charge for depreciation and amortization expense. 33
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Table of Contents During the three months endedMarch 31, 2020 , operating activities used$31.4 million of cash, resulting from our net loss of$14.3 million , net cash used in changes in our operating assets and liabilities of$12.2 million and net non-cash income of$4.9 million . Net cash used in changes in our operating assets and liabilities consisted of a$9.5 million decrease in accounts payable, a$3.0 million increase in long-term prepaid rent, a$1.3 million decrease in deferred revenue and a$1.6 million increase in short-term collaboration receivables, partially offset by a$2.6 million decrease in prepaid expenses and other assets and a$0.6 million increase in accrued expenses. Net non-cash income for the three months endedMarch 31, 2020 primarily consisted of a$9.5 million decrease in the change in the fair value of contingent consideration which was primarily due to an increase in the discount rate, partially offset by an increase in the fair value due to the continued progress of the MRT5005 program and the time value of money due to the passage of time. Investing Activities During the three months endedMarch 31, 2021 , net cash used in investing activities was$188.5 million , consisting of$186.9 million of purchases of i nvestments and$1.6 m illion of purchases of property and equipment. During the three months endedMarch 31, 2020 , net cash provided by investing activities was$44.3 million , consisting of$74.0 million of sales and maturities of investments, partially offset by$27.4 million of purchases of investments and$2.3 million of purchases of property and equipment. Financing Activities During the three months endedMarch 31, 2021 , net cash provided by financing activities was$1.6 million , consisting solely of proceeds from option exercises. During the three months endedMarch 31, 2020 , net cash provided by financing activities was$0.1 million , consisting solely of proceeds from option exercises. Funding Requirements We expect our expenses to increase in connection with our ongoing activities, particularly as we continue the research and development of, continue ongoing and initiate new clinical trials of and seek marketing approval for our product candidates. In addition, we expect to incur additional costs associated with operating as a public company. Our expenses will also increase if, and as, we: • continue the clinical development of MRT5005; • continue the development of mRNA vaccine candidates against infectious diseases, including MRT5500, the lead vaccine candidate against SARS-CoV-2; • leverage our programs to advance our other product candidates into preclinical and clinical development; • seek regulatory approvals for any product candidates that successfully complete clinical trials; • seek to discover and develop additional product candidates; • expand our manufacturing, operational, financial and management systems; • increase personnel, including personnel to support our clinical development, manufacturing and commercialization efforts and our operations as a public company; • maintain, expand and protect our intellectual property portfolio; • acquire or in-license other product candidates and technologies; • incur additional legal, accounting and other expenses in operating as a public company; and • establish a sales, marketing, medical affairs and distribution infrastructure to commercialize any product candidates for which we may not obtain marketing approval and intend to commercialize on our own or jointly. 34
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We believe that our existing cash, cash equivalents and investments of
• the impacts of the
COVID-19 pandemic and our response to it; • the scope, progress, results and costs of researching and developing our product candidates, and conducting preclinical studies and clinical trials; • the success of our collaboration with Sanofi; • the costs, timing and outcome of regulatory review of our product candidates; • the costs of future activities, including product sales, medical affairs, marketing, manufacturing and distribution, for any of our product candidates for which we receive marketing approval; • the costs of manufacturing commercial-grade products and sufficient inventory to support commercial launch;
• the ability to receive additional
non-dilutive funding, including grants from organizations and foundations; • the revenue, if any, received from commercial sale of our products, should any of our product candidates receive marketing approval; • the cost and timing of hiring new employees to support our continued growth; • the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims; • the ability to establish and maintain collaborations on favorable terms, if at all;
• the extent to which we acquire or
in-license other product candidates and technologies; and • the timing, receipt and amount of sales of, or milestone payments related to or royalties on, our current or future product candidates, if any.
A change in the outcome of any of these or other variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate. Further, our operating plans may change in the future, and we may need additional funds to meet operational needs and capital requirements associated with such operating plans.
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Table of Contents Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of public or private equity offerings, debt financings, collaborations, strategic partnerships or marketing, distribution or licensing arrangements with third parties and grants from organizations and foundations. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of our common stockholders may be materially diluted, and the terms of such securities could include liquidation or other preferences that could adversely affect the rights of our common stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include restrictive covenants that limit our ability to take specified actions, such as incurring additional debt, making capital expenditures or declaring dividends. In addition, debt financing would result in increased fixed payment obligations. If we raise funds through collaborations, strategic partnerships or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. Cash Requirements from Contractual and Other Obligations During the three months endedMarch 31, 2021 , there were no material changes to our cash requirements from contractual and other obligations as ofDecember 31, 2020 described under Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2020 Annual Report. InApril 2021 , we entered into a contract withThe Richmond Group, Inc. for$36.8 million for the build-out of the200 West Street location inWaltham, Massachusetts . Under the lease agreement for the200 West Street location, our landlord will reimburse us$26.3 million for tenant improvement allowances. We expect to spend between$10.5 million and$12.5 million towards build-out costs, which represents the cost of the project that exceeds the tenant improvement allowances. Critical Accounting Policies and Significant Judgments and Estimates Our condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles inthe United States . The preparation of our condensed consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities in our finance statements. We believe that several accounting policies are important to understanding our historical and future performance. We refer to these policies as critical because these specific areas generally require us to make judgments and estimates about matters that are uncertain at the time we make the estimate, and different estimates-which also would have been reasonable-could have been used. On an ongoing basis, we evaluate our estimates and judgments. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions. There have been no material changes to our critical accounting policies from those described in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2020 Annual Report. 36
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